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cguy

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By all means look at the attached chart of the S&P 500 since the bottom of 2009. I count more than 15 5%+ corrections over that 10 year period. So yeah, they are lot more common. Don't need a quantitative edge or special knowledge to know that nothing goes up in straight line and assets are in a continuous cycle of going from overvalued to undervalued. The market is efficient? I don't think so. Not a popular opinion to have but I just don't buy into it. If the market was efficient, things like Steinhoff and Enron would never have happened.
You will find that if you continuously place bets based on the belief of periodic 5% corrections, you will find the timing to be that when they occur, you would have lost out on probably a bit more than 5% growth in the meanwhile.

If you know that assets are in a continuous cycle of being undervalued vs overvalued, then simply buy low, sell high and make a fortune. The reason you can’t do this, is precisely because of efficiency.

There’s nothing about the Steinhoff or Enron situation (that I know of) that contradicts the efficient market theory - what specifically are you referring to?
 

8BitLife

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You will find that if you continuously place bets based on the belief of periodic 5% corrections, you will find the timing to be that when they occur, you would have lost out on probably a bit more than 5% growth in the meanwhile.

If you know that assets are in a continuous cycle of being undervalued vs overvalued, then simply buy low, sell high and make a fortune. The reason you can’t do this, is precisely because of efficiency.

There’s nothing about the Steinhoff or Enron situation (that I know of) that contradicts the efficient market theory - what specifically are you referring to?
I think you are confusing trading with investing. It's not about placing bets and continuously trying to buy low and sell high. It is about trying to get as good an entry point for your long-term buy as possible. It is about, if you have cash available which you are looking to deploy right now, rather holding off for a bit. That just my personal view.

But mostly I shared that chart because of what you said about expert investors selling out of positions because of a possible 5% drop coming and therefor the drop would already have happened. That chart showed that 5% drops happen all of the time and by your argument expert investors will thus never be in the market.

I am by no means saying you can predict the exact point at which a market can turn. But you can make a good enough educated guess as to when something is getting a bit too expensive and rather hold off on buying.

According the efficient market hypothesis, at any given time, share prices fully reflect all available information. So then how did Steinhoff and Enron manage to be so mispriced? You cannot say the data wasn't there. The guys at Viceroy (who aren't CFAs or investment professionals) managed to figure out the scam that was Steinhoff solely based publicly available data. The data was there and yet the market chose to not look at that. That is not supposed to happen according the EMH. The market wasn't efficient at all.
 

cguy

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I think you are confusing trading with investing. It's not about placing bets and continuously trying to buy low and sell high. It is about trying to get as good an entry point for your long-term buy as possible. It is about, if you have cash available which you are looking to deploy right now, rather holding off for a bit. That just my personal view.
If you can pick a good entry point that is by some measure better than any other, it means that you are trading with an edge. It is exactly the same process, even if you hold the position for years.

But mostly I shared that chart because of what you said about expert investors selling out of positions because of a possible 5% drop coming and therefor the drop would already have happened. That chart showed that 5% drops happen all of the time and by your argument expert investors will thus never be in the market.
The drop is the expert investors entering, exiting or shorting the market. The most informed investor will initiate it, based on a news event or market signal, followed by other semi-informed investors. You won't know the drop is happening until it has happened.

I am by no means saying you can predict the exact point at which a market can turn. But you can make a good enough educated guess as to when something is getting a bit too expensive and rather hold off on buying.
You really can't make an educated guess - that's my point. Some people (usually organizations) can, and they can make a ton of money because of it. If you're not making a ton of money, it really means that either you can't, or that you're really bad at monetizing an extremely rare skill set.

According the efficient market hypothesis, at any given time, share prices fully reflect all available information. So then how did Steinhoff and Enron manage to be so mispriced? You cannot say the data wasn't there. The guys at Viceroy (who aren't CFAs or investment professionals) managed to figure out the scam that was Steinhoff solely based publicly available data. The data was there and yet the market chose to not look at that. That is not supposed to happen according the EMH. The market wasn't efficient at all.
It wasn't mispriced - that's not what mispricing is, nor what the EMH is. "all available information" refers to data known, and fully realized by at least one significant stock market participant. This is the "special knowledge" I referred to in my initial post. You are conflating data with information.
 

TheJman

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I hear you, and I'm sitting on a large sum of cash as well, but devil's advocate: What happens if the correction/crash is only in 5-10 years time and you miss out on 100%+ growth in the meantime? Time in the market vs timing the market etc.
So worthwhile doing a bit of research into this, there is a concept called "it's not about timing the market, it's time in the market"... and they do an analysis of if you had managed to time the market vs if you have just bought in consistently each month - sorry I can't find it at the moment. But the thing they found is that it's not possible to time the market perfectly, and you actually end up worse off trying to time the market.

Having said that, I've been sitting on cash because at first I was holding back waiting for a correction - but lately, the markets (SA markets) have been producing 4% at max (at least the funds I'm in), where as cash is getting be closer to 8% ....
 

8BitLife

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If you can pick a good entry point that is by some measure better than any other, it means that you are trading with an edge. It is exactly the same process, even if you hold the position for years.



The drop is the expert investors entering, exiting or shorting the market. The most informed investor will initiate it, based on a news event or market signal, followed by other semi-informed investors. You won't know the drop is happening until it has happened.



You really can't make an educated guess - that's my point. Some people (usually organizations) can, and they can make a ton of money because of it. If you're not making a ton of money, it really means that either you can't, or that you're really bad at monetizing an extremely rare skill set.



It wasn't mispriced - that's not what mispricing is, nor what the EMH is. "all available information" refers to data known, and fully realized by at least one significant stock market participant. This is the "special knowledge" I referred to in my initial post. You are conflating data with information.
If you work in the world of finance and investing you WILL have an edge over someone who doesn't because it's your job to follow the markets. You have more time you can devote to following and processing the information than someone who doesn't work in the industry.

The drop is the expert investors entering, exiting or shorting the market? With that right there you have just nullified your whole efficient market argument. The whole argument made by the efficient market hypothesis is that nobody can really outperform the market. You are insinuating that expert investment organizations can do just that. They can pick the top and get out/go short at the exact right moment the market reaches its top and thus get that outperfomance. It goes against everything the EMH states.

You can't make an educated guess???? So just to be clear, I should just totally disregard all economic news and data because it means absolutely nothing? Really?

And Steinhoff wasn't mispriced? Then why did the crash in its stock price occur? The data WAS KNOWN to and FULLY REALISED by Viceroy (ie the market participant) as they had a short position open at the time the Steinhoff crash occurred. And how exactly am I conflating data with information? There was nothing special about their 'knowledge.' It came straight out of Steinhoff's own reports. Publicly available. To everyone. It wasn't insider information. It wasn't a secret. The market just didn't choose to pay attention to it.
 

8BitLife

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So worthwhile doing a bit of research into this, there is a concept called "it's not about timing the market, it's time in the market"... and they do an analysis of if you had managed to time the market vs if you have just bought in consistently each month - sorry I can't find it at the moment. But the thing they found is that it's not possible to time the market perfectly, and you actually end up worse off trying to time the market.

Having said that, I've been sitting on cash because at first I was holding back waiting for a correction - but lately, the markets (SA markets) have been producing 4% at max (at least the funds I'm in), where as cash is getting be closer to 8% ....
I agree with you. If you have money coming in every month, then deploy it every month instead of building it up and waiting for the opportune time to deploy it all at once. But if it is a once off amount coming in, then it is a different story.
 

TheJman

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I agree with you. If you have money coming in every month, then deploy it every month instead of building it up and waiting for the opportune time to deploy it all at once. But if it is a once off amount coming in, then it is a different story.
100%, but even then - if you have a big once off amount coming in, like a bonus - they slowly take out amounts each month to dip into the market with - even if you do it over a year
 

8BitLife

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100%, but even then - if you have a big once off amount coming in, like a bonus - they slowly take out amounts each month to dip into the market with - even if you do it over a year
Depends on the amount though. You want to make sure the amounts are big enough to always be above minimum brokerage if your broker charges minimums. Otherwise the brokerage will kill you as opposed to deploying the whole amount in one go.
 

TheJman

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Depends on the amount though. You want to make sure the amounts are big enough to always be above minimum brokerage if your broker charges minimums. Otherwise the brokerage will kill you as opposed to deploying the whole amount in one go.
Completely agree!! Fees should be a TOP priority when looking at investments!!
 

cguy

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If you work in the world of finance and investing you WILL have an edge over someone who doesn't because it's your job to follow the markets. You have more time you can devote to following and processing the information than someone who doesn't work in the industry.
Yes. Not just that, but even many people in finance don't actually have an edge either, which is why they don't do well long term. Gaining and maintaining and edge is a very hard thing to do.

The drop is the expert investors entering, exiting or shorting the market? With that right there you have just nullified your whole efficient market argument. The whole argument made by the efficient market hypothesis is that nobody can really outperform the market. You are insinuating that expert investment organizations can do just that. They can pick the top and get out/go short at the exact right moment the market reaches its top and thus get that outperfomance. It goes against everything the EMH states.
No, the entire point of my argument is that the efficient market hypothesis applies to you, and not to those people who have an edge. That's the whole point of my referring to "special knowledge", "edge", "informed", etc.

You can't make an educated guess???? So just to be clear, I should just totally disregard all economic news and data because it means absolutely nothing? Really?
You can work really hard and use that news to become "informed" about specific industrial sectors and/or companies, or you can follow a strategy that tries to get you the expected market returns (as opposed to trying to beat it), e.g., dollar cost averaging. Observing that there are periodic 5% drops on an S&P chart over the last 10 years is not becoming informed - you are setting yourself up for worse than market returns.

And Steinhoff wasn't mispriced? Then why did the crash in its stock price occur? The data WAS KNOWN to and FULLY REALISED by Viceroy (ie the market participant) as they had a short position open at the time the Steinhoff crash occurred. And how exactly am I conflating data with information? There was nothing special about their 'knowledge.' It came straight out of Steinhoff's own reports. Publicly available. To everyone. It wasn't insider information. It wasn't a secret. The market just didn't choose to pay attention to it.
As I understand it, Viceroy noticed the accounting irregularities, shorted the stock and published their report. The market would have dropped when Viceroy shorted (the extent of which depends on "significance" i.e., market participant size), after which the next most informed (first to respond to their report and/or selloff) would continue according to their capacity, etc. This is called "price discovery". Once again, they were informed - for them, the EMH didn't apply because they had an edge, and they could trade accordingly. The reason you couldn't make money on it is that knowledge had already been priced in by the time you became aware of it. It wasn't mispriced for you.
 

8BitLife

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Yes. Not just that, but even many people in finance don't actually have an edge either, which is why they don't do well long term. Gaining and maintaining and edge is a very hard thing to do.



No, the entire point of my argument is that the efficient market hypothesis applies to you, and not to those people who have an edge. That's the whole point of my referring to "special knowledge", "edge", "informed", etc.



You can work really hard and use that news to become "informed" about specific industrial sectors and/or companies, or you can follow a strategy that tries to get you the expected market returns (as opposed to trying to beat it), e.g., dollar cost averaging. Observing that there are periodic 5% drops on an S&P chart over the last 10 years is not becoming informed - you are setting yourself up for worse than market returns.



As I understand it, Viceroy noticed the accounting irregularities, shorted the stock and published their report. The market would have dropped when Viceroy shorted (the extent of which depends on "significance" i.e., market participant size), after which the next most informed (first to respond to their report and/or selloff) would continue according to their capacity, etc. This is called "price discovery". Once again, they were informed - for them, the EMH didn't apply because they had an edge, and they could trade accordingly. The reason you couldn't make money on it is that knowledge had already been priced in by the time you became aware of it. It wasn't mispriced for you.
What the actual f???? You honestly want to tell me that someone working full-time in the investment space cannot maintain an edge over someone who doesn't? You will just type anything to be contradictory won't you?

The EMH only applies to certain individuals? You don't know anything about the EMH, do you? I think it is safe to say you are just pulling this stuff out of your ass as you go. The whole premise of the EMH is that you can't have an edge. Not you. Not me. NOBODY. And you wrote that whole first paragraph just to contradict yourself entirely in the second paragraph. You say in the first paragraph that someone who works in the investment space won't have an edge over someone who doesn't then turn around and say investment experts will have an edge over me??????? You are just all over the place.

I never claimed observing that there are periodic drops of 5% made me informed. I brought it up because of your silly claim that if a 5% drop was expected your mystical experts, to whom the EMH does not apply, will exit the market before it happens. So I brought up the chart to show that 5% drops happen all the time and by your logic these unicorns will never be in the market then.

And now you are saying I CAN use news to be informed but before you said I can't make an educated guess? Again, you are ALL OVER the place. And again, just proving that you will say anything to be contradictory.

Sorry to break it to you, you don't understand it at all. Viceroy did not drop their report before the Steinhoff crash. They dropped it the day after it had already happened. They had it ready before it happened, but they did not publish it before it happened. And what? The market would have dropped WHEN Viceroy shorted the stock? Again you expose your ignorance. A stock does not drop that much just because ONE individual/organization shorts a stock.

And there you go again talking about how the EMH does not apply to some but it does apply to others. Also once again contradicting what you said in the first paragraph. One moment having more time to follow and digest more economic news (hence having more information) cannot give me an edge and the next you want to tell me Viceroy had an edge because they had more information? Where do you get this crap?

And this is the best one I have heard in a long time: "It wasn't mispriced for you. "

So let me get this straight. You are trying to say that just because other people were not as acutely aware of the accounting irregularities at Steinhoff as Viceroy, the stock wasn't mispriced for anyone other than Viceroy? As if those irregularities did not magically exist for anyone else other than Viceroy? That is like saying just because I can't see the hole in ozone layer it does not exist.

Honestly dude, I sincerely hope you do not give people financial advise in a professional capacity because you clearly don't know what you are on about. I have literally never read a post that is so all over the place and full of uninformed bs like the one you just made.

You can't have an edge. You can have an edge. You can't have an edge. You can have an edge. LOL. I'm out chief.
 

cguy

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What the actual f???? You honestly want to tell me that someone working full-time in the investment space cannot maintain an edge over someone who doesn't? You will just type anything to be contradictory won't you?
I said that many (and more than likely most), cannot maintain an edge. You are implying “all” for some reason.

The EMH only applies to certain individuals? You don't know anything about the EMH, do you? I think it is safe to say you are just pulling this stuff out of your ass as you go. The whole premise of the EMH is that you can't have an edge. Not you. Not me. NOBODY.
If the above was true, price discovery wouldn't exist. The EMH is a hypothetical construct - it doesn't apply to those who participate in price discovery. Market prices don't magically change. They change due to trading and limit order activity driven by the informed individuals.

And you wrote that whole first paragraph just to contradict yourself entirely in the second paragraph. You say in the first paragraph that someone who works in the investment space won't have an edge over someone who doesn't then turn around and say investment experts will have an edge over me??????? You are just all over the place.
Please read properly - this is getting laborious. I said "many people in finance don't actually have an edge", there are still those who do. It's only contradictory if you don't understand the difference between "many" and "all".

I never claimed observing that there are periodic drops of 5% made me informed.
You literally said "But it will be coming in the next month or 2." This is a claim of being informed.

I brought it up because of your silly claim that if a 5% drop was expected your mystical experts, to whom the EMH does not apply, will exit the market before it happens. So I brought up the chart to show that 5% drops happen all the time and by your logic these unicorns will never be in the market then.
Almost - during those 5% drops, the informed traders are with greater than 50% probability (not "never" - the simplistic way you think about this, is exactly why you shouldn't be trading) either out of the market, or shorting. When they sell off or short, they actually cause the drop, and from then on out the expectation is baked in.

And now you are saying I CAN use news to be informed but before you said I can't make an educated guess? Again, you are ALL OVER the place. And again, just proving that you will say anything to be contradictory.
I am referring to you as an uniformed participant versus you as an informed participant. Obviously, anybody can potentially become informed, but the vast majority of people are not. If you are looking at the S&P charts and holding back for a drop based on a pattern of dips, you are almost certainly uniformed.

Sorry to break it to you, you don't understand it at all. Viceroy did not drop their report before the Steinhoff crash. They dropped it the day after it had already happened. They had it ready before it happened, but they did not publish it before it happened. And what? The market would have dropped WHEN Viceroy shorted the stock? Again you expose your ignorance. A stock does not drop that much just because ONE individual/organization shorts a stock.
So, why do you think the price drop happened? Also, of course it happens when a large enough organization dumps their position, either due to the sheer size of the position, or the resulting panic caused by such a sell off.

And there you go again talking about how the EMH does not apply to some but it does apply to others. Also once again contradicting what you said in the first paragraph. One moment having more time to follow and digest more economic news (hence having more information) cannot give me an edge and the next you want to tell me Viceroy had an edge because they had more information? Where do you get this crap?

And this is the best one I have heard in a long time: "It wasn't mispriced for you. "
There is informed and then there is informed. If you're not at the top of the game you're gambling against the house.

So let me get this straight. You are trying to say that just because other people were not as acutely aware of the accounting irregularities at Steinhoff as Viceroy, the stock wasn't mispriced for anyone other than Viceroy? As if those irregularities did not magically exist for anyone else other than Viceroy? That is like saying just because I can't see the hole in ozone layer it does not exist.
What I am apparently battling to say is that every price you see is priced correctly, given the information you have. When informed investors/traders get new information, it becomes mispriced for them, and they will take actions that will change the price, after which, you will become aware of the event. Unlike the ozone layer, the shape of the market isn't determined by physics, it is determined by the information, misinformation and belief of its participants.

Honestly dude, I sincerely hope you do not give people financial advise in a professional capacity because you clearly don't know what you are on about. I have literally never read a post that is so all over the place and full of uninformed bs like the one you just made.

You can't have an edge. You can have an edge. You can't have an edge. You can have an edge. LOL. I'm out chief.
I have made a fortune trading professionally for the last 10 years. I was really just trying to get you over that first Dunning-Kruger hump here. If you think you can do better without having a clue, by all means keep chugging along.
 
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johnjm

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Jul 26, 2005
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At a bond rate of prime less 1.9% change opinion?
The JSE is flat. It's been flat for 3 years. What other after tax investment will yield you 8.1%?

I've exited local equities since 2016 personally. What I am invested in currently are products by Goldman Sachs linked to the S&P while others are in the FTSE.

One matured in Monday, despite the appreciation of the ZAR it still provided a 44% return in 3 years if converted to ZAR.

RIP Africa.
 

johnjm

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I said that many (and more than likely most), cannot maintain an edge. You are implying “all” for some reason.



If the above was true, price discovery wouldn't exist. The EMH is a hypothetical construct - it doesn't apply to those who participate in price discovery. Market prices don't magically change. They change due to trading and limit order activity driven by the informed individuals.



Please read properly - this is getting laborious. I said "many people in finance don't actually have an edge", there are still those who do. It's only contradictory if you don't understand the difference between "many" and "all".



You literally said "But it will be coming in the next month or 2." This is a claim of being informed.



I never said they wouldn't or didn't exist - I said that you can't predict them profitably.



I am referring to you as an uniformed participant versus you as an informed participant. Obviously, anybody can potentially become informed, but the vast majority of people are not. If you are looking at the S&P charts and holding back for a drop based on a pattern of dips, you are almost certainly uniformed.



So, why do you think the price drop happened? Also, of course it happens when a large enough organization dumps their position, either due to the sheer size of the position, or the resulting panic caused by such a sell off.



There is informed and then there is informed. If you're not at the top of the game you're gambling against the house.



What I am apparently battling to say is that every price you see is priced correctly, given the information you have. When informed investors/traders get new information, it becomes mispriced for them, and they will take actions that will change the price, after which, you will become aware of the event. Unlike the ozone layer, the shape of the market isn't determined by physics, it is determined by the information, misinformation and belief of its participants.



I have made a fortune trading professionally for the last 10 years. I was really just trying to get you over that first Dunning-Kruger hump here. If you think you can do better without having a clue, by all means keep chugging along.
Saw your post now. I nearly got into the trading ame (well for me it would have been a hobby at first) and I really regret that I didnt.

I want to PM you to get an idea how you entered into it.
 

cguy

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Saw your post now. I nearly got into the trading ame (well for me it would have been a hobby at first) and I really regret that I didnt.

I want to PM you to get an idea how you entered into it.
Sure, PM away. :)
 

Jehosefat

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And Steinhoff wasn't mispriced? Then why did the crash in its stock price occur? The data WAS KNOWN to and FULLY REALISED by Viceroy (ie the market participant) as they had a short position open at the time the Steinhoff crash occurred. And how exactly am I conflating data with information? There was nothing special about their 'knowledge.' It came straight out of Steinhoff's own reports. Publicly available. To everyone. It wasn't insider information. It wasn't a secret. The market just didn't choose to pay attention to it.
You keep referring to a single event where one market participant's interpretation of the data just happened to be right and "predicted" the crash. Do you have any idea how often interpretations like that are wrong? Of course not, it's not like any investment firm is going to go around telling the world "we screwed up" when they were wrong but of course they will play it up massively when they are right, it's a great marketing opportunity. If there was nothing special about their interpretation why didn't everyone see the crash coming? (Why didn't you see the crash coming?) And the difference between their interpretation and the rest of the market is effectively the difference between information and data. Data is the financial statements, information is what you interpret them to mean that causes you to act in a certain way.

To your other point about an person working in investments having an edge over someone who doesn't; sure. But an edge over some market participants is not enough to make long term returns above the index average. If you want to make above index return in the long term you have to have an edge over all market participants (or at least over most of them all of the time) which, let's be honest, isn't possible as an individual and is not much more possible for an institution.
 
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